Retail Science from CBRE Is luxury immune to the GLOBAL twists and turns LUXURY RETAIL: of the global economy? A DIVERGENT Luxury profiling A close up on Lagos, MARKET New York and Mumbai Luxury retailing Vital statistics 2015 CBRE Research “Consumer Focus - luxury consumers of the future” in collaboration with: A small international community of luxury consumers and fashion sector influencers created by We Are (The Collective). Exploring how the next generation of digitally-connected customers will be making their purchases. we-are.co Project / Community Title: Luxury Consumers of the Future URL: future.editsloanestreet.com CONTENTS —03 Introduction —04 Sector overview – Is luxury immune to changes in the economy? —14 Consumer focus – Luxury consumers of the future —33 Luxury profiling – A global perspective: close up on Lagos, New York and Mumbai —41 Retailers’ performance —48 Conclusion – The future of luxury retail —53 Key contacts Introduction – 4 – © 2015 CBRE, Ltd Introduction INTRO DUCTION The world of luxury continues to Whilst looking at individual markets The conclusion of the findings has to fascinate and intrigue. The brand is important, it would be remiss not to relate back to where retailers are looking names synonymous with luxury consider the wider global implications for to expand; target markets are changing shout out to us from many locations luxury. As an industry that has, to a great as the penetration of luxury in established around the world. extent, been immune from the chill wind markets reaches maturation. The new blowing across other parts of the economy, markets require distinct strategies as CBRE has invested in research to get we wanted to understand why that might consumer requirements differ between beneath the surface of luxury in three be and what the future might look like. countries and there is a divergence in traditional cities across Europe: London, how retailers choose to go to market in Paris and Milan. They are recognised as One of the great challenges is in forecasting new countries; some choose the franchise leading the way in terms of brand heritage the dynamics within the Chinese consumer route and work with local partners, whilst and retailer presence, and the time spent market; as spend from China now makes others want to own every element of their with the consumers of luxury in these cities up more than a third of total global spend brand. There is no ‘one’ answer, the correct provides a fascinating insight into their lives, on luxury, a full understanding is critical. method very much depends on the brand expectations and experience. The fact that the Chinese consumer prefers and on the market being expanded into. to shop overseas is the factor that has To expand the view of luxury we also major implications for the scale of brands’ As more people aspire to engage with engaged our market experts in New store estates in China. We explore what luxury brands, the topic of luxury will York, Mumbai and Lagos. With these the changes in the global economy mean remain high on many developers, investors three snapshots we chose to look at an for luxury brands. and, of course, retailers’ agendas. An in established market, a developing one depth understanding of how consumers and a market for the future, to give you engage is absolutely key and the approach a view as to the presence of and future taken in one market may not necessarily potential for luxury brands. be appropriate for another: luxury is unique and requires a unique approach. © 2015 CBRE, Ltd – 5 – Is Luxury immune to changes in the economy? The luxury economy had, until recently, “ The Chinese consumer seemed immune to the vagaries of is now responsible global events. The overall downturn in consumer confidence in some markets for over 30% of global and the slowing economies in others did not have an adverse impact on luxury purchases.” luxury spend; this lack of causal effect has changed quite dramatically in the past few months. The fluctuations seen in the Chinese financial markets have created a ripple effect. Uncertainty as to what the downturn actually means has led to a fall in the share price of a number of established international fashion houses, and a belief that the economy in China is slowing has caused many institutions to review their own positions. Whilst the forecast Chinese GDP growth remains at a level that would be the envy of most western countries, it is lower than originally expected. IMMUNE IMMUNE TO IN IN THE ECONOMY? IS IS LUXURY CHANGES – 6 – © 2015 CBRE, Ltd Is Luxury immune to changes in the economy? The Chinese consumer is now responsible for over 30% of global luxury purchases. According to a Bain & Company report in 2015, Chinese people consumed US$75 billion of luxury products in 2014, but around 70% of their spend took place overseas. In absolute terms, Asia has the highest number of luxury brand outlets in the world; between 2008 and 2011 we saw a 42% increase in the number of stores in Asia, compared to 28% in Europe and 5% in America, according to Boston Consulting Group. The growth in store openings that has been seen over the past five years is, however, slowing. A number of brands are reviewing their store portfolios to ensure that they have the rights stores in the right locations. In terms of net growth over the next year, we are unlikely to see dramatic spikes in the number of stores opened; there is a growing recognition that luxury retailers have focused too much on the numbers of stores on the ground. The development of new layouts and design of stores, superb levels of service as well as an integrated online element will become increasingly more important. © 2015 CBRE, Ltd – 7 – Is Luxury immune to changes in the economy? “ The heritage and authenticity of luxury products is extremely important.” Any change in the dynamics that impact Luxury brands have differing price tiers This, however, does not help the luxury the luxury consumer creates a state of depending on the region in question. goods brands in their attempts to increase nervousness across the industry. Many China has been considered an immature sales in the Chinese market. brands now recognise they expanded too market, with a resultant high price point. quickly into the Chinese market, drawn Complaints that the price differential A further change that has been seen in the by a belief – not fully materialised – that could be as high as 70% has seen many Chinese market is the Government ’anti- increased personal wealth would drive consumers converting their Yuan to British extravagance‘ legislation. In essence, this is sales of luxury products within China. Pounds, US Dollars or Euros and making aimed at reducing the purchasing of luxury their purchases overseas, where the prices items as ‘gifts’ for officials and business The fact is that Chinese consumers prefer are more attractive.There is a certain status associates. This has had an impact on the to shop for luxury products whilst abroad, afforded to a purchase of a Prada bag in number of purchases being made and there a preference that has been recognised Milan as opposed to Shanghai. is now more focus on items for personal use by the Government in the UK: Visas The heritage and authenticity of luxury as opposed to being purchased as gifts. for Chinese visitors are now easier and products is extremely important. cheaper to obtain; a visiting family of four Whilst the aforementioned authenticity of would make a potential saving of almost Earlier this year many famous brands the products is of course important, the £1,000. Even those customers who do not reduced their prices in order to stem the price of the product is also critical to many. physically travel outside of China can take flow of money leaving China. The timing The growth in importance of outlet designer advantage of third party sellers that will of this was unfortunate as any benefit that villages has brought luxury products to a make the purchase on their behalf: these had been hoped for was limited by the wider audience. ‘daigou’ circumnavigate the high import devaluation of the Yuan in August. Despite duties and deliver authentic products. this catching the global market by surprise, the reasons for the devaluation are in line with market fundamentals (slower overall growth in China and a stronger US$). – 8 – © 2015 CBRE, Ltd Is Luxury immune to changes in the economy? © 2015 CBRE, Ltd – 9 – Is Luxury immune to changes in the economy? Case study Bicester village Bicester Village in the UK now attracts 6.3 million visitors a year looking for brands such as Balenciaga, Prada and Céline. Chinese visitors in particular seem to be attracted to Bicester, with it now being the second most visited ‘tourist attraction’ for them after Buckingham Palace. Three in four visitors to the UK from China visit Bicester Village. A combination of a Mandarin signposted train service from London’s Marylebone station and 10,000 tour buses a year disgorging the shoppers to stock up on luxury brands. A new train station, called Bicester Village, opened on the 26th October this year; it is the first new railway line to link London to another British city for 100 years. It will be interesting to see the impact on Bicester Village once a similar luxury outlet destination opens in Shanghai next year. Will the prices be at levels attractive enough to persuade Chinese consumers to spend their money within China? The site is in the same location as Disney Resort Shanghai and is anticipated to become ‘one of the most important luxury destinations in Asia.’ With 50,000 sq m of outlet and restaurant space it intends to service the anticipated 15 million visitors a year from both local and overseas locations.